Are Japanese Managers More Long-Term Oriented Than United States Managers?

The notion that Japanese managers are more long-term oriented than Western managers has received a great deal of attention. For example, Vogel (1979) argued that Japanese managers are willing to defer maximizing immediate profits to increase market share. Campbell (1994) suggested that Japan's top managers have generally been focused on the long-term success of the company, rather than the short-term wealth of the shareholders. According to Abbeglen and Stalk (1985), Japanese companies are much less focused on short-term profitability than US companies. Instead, Japanese companies focus on growth through aggressive financial policies and an emphasis on marketing and product development. By focusing on market share and building customer relationships, long-term financial success becomes more likely.

In this paper, we examine individual characteristics of Japanese and United States managers, with a focus on managerial time horizons. Time horizon is defined as the predisposition toward a future focus of an individual decision maker. The future focus can vary from a short period to a long period in time. The issue of managerial time horizons is especially important because the time horizons of US managers are widely believed to be short relative to their foreign competitors (Mannix/Loewenstein 1994). As well, for managers involved in cross-cultural negotiations and interactions, understanding managerial behavior is critical. While other studies have examined time horizon at the firm level, as far as we could determine, this is the first attempt to empirically explore the conventional wisdom that Japanese managers are more long-term oriented than their US counterparts.

Conceptual Background

Over the last two decades, US firms have lost their global dominance in many industries. This decline has often been attributed to the short time horizones of US managers. This issue has been widely discussed and documented in the business press (e.g., Business Week 1984, Dobrzynski et al. 1986, Drucker 1986, Hector 1988, Lohr 1992, Faltermayer 1990). The alleged short time horizons of US managers has caused such concern that the US. Congress held hearings on the subject.(2) The Council on Competitiveness and Harvard Business School sponsored a research report on a similar theme.(3) Evidence has been marshaled on both sides. US managers have been criticized for their "short-termism" (Banks/Wheelwright 1979, Choate/Linger 1986, Hayes/Abernathy 1980, Onkvisit/Shaw 1991), with declining global market shares of US companies used as evidence. Because aggregate spending on industrial R&D expenses (a future oriented expense) has not significantly changed, other researchers have argued that US management is not characterized by "short-termism" (Bruce/Taylor 1991, Geber 1988, Logue 1985).

The short-term behavior of US managers is often attributed to capital market demands (Loescher 1984). If stockholders in US firms are primarily interested in quarterly earnings, these stockholders may liquidate their stockholdings when managers make long-term investments that depress current quarter earnings. Thus, managers with an eye on the stock price would forgo making investments that only pay off in the long run. One could argue that in a free market economy, taking a short-term view of investments for the future should not matter. In a strict Darwinian sense, the myopic firms would be eliminated by the market (if the market valued long-term decision making) and the long-term oriented firms would be rewarded. However, it is not clear how certain structural factors such as national culture affect resource allocation decisions in corporations. Hill (1995), for example, discussed how institutional structures in certain countries help in minimizing transaction costs. Along similar lines, agency costs may be a function of culture.

Researchers studying the time horizon issue (e.g., Hall 1991, Poterba/Summers 1991) have focused their attention on corporate level behavior like research and development expenditures or capital expenditures of the firm. …

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